BCE Inc. (BCE) shares continued their September slide, losing another C$0.50 through mid-day trading on Thursday. The stock is down about 4% this month and now trades at a roughly 10% discount to the C$42.75 privatization bid for the company expected to close in December.
Genuity Capital analyst Dhavi Ghose attributes the weakness in the stock to several factors including primarily, net redemptions at hedge funds and arbitrage specialist funds.
In a note, he said:
[These] funds would seem to be disproportionately exposed to BCE because of its LBO/risk arbitrage situation.
He also wrote that continued challenges in the financial services sector have some people arguiing that perhaps Citigroup and others will not be able to meet their financial commitments to the BCE LBO syndicate.
As well, challenges in the high yield market, exemplified in particular by the $228-million worth of Clear Channel Communications Inc. (CCU) bonds that banks were forced to sell at a lower price than planned, may also be causing concern with investors.
Whatever the cause, Mr. Ghose remains convinced that BCE shares priced as they are, represents nothing but a great opportunity.
He wrote:
Those who have cash should take advantage. A potential annualized return of 41% is nothing to sneeze at.
He reminded his clients that the BCE deal is not contingent on financing and that BCE enjoys a far stronger and more stable cash flow profile than Clear Channel.
BCE will be less levered than Clear Channel post LBO and Clear Channel has been privatized despite challenges in the high yield market.
